Manchester City kept pace, the day after Pep Guardiola was announced as their new manager, by winning 1-0 at Sunderland, but Arsenal fell five points below the summit after a disappointing 0-0 draw at home to Southampton.
Manchester United blew off the cobwebs in a 3-0 win over Stoke City, but nothing could overshadow the predatory brilliance of Vardy, whose goals preserved Leicester's three-point lead over second-place Manchester City.
Ranieri tells Leicester to seize the moment
"The first goal was unbelievable," said Leicester manager Claudio Ranieri.
"Jamie is very fast and can create a lot, but it was unbelievable how (Riyad) Mahrez found him and how he had the time to see the keeper out of the goal and score a fantastic goal.
"The team is in good condition. Now it is important to recover the energy because we have to run a lot against Manchester City."
Reports had emerged earlier in the day that Vardy is due to sign a new contract and the 29-year-old England striker delivered a perfectly timed reminder of his talent at the King Power Stadium.
Van Gaal wants improved performance despite results
He opened the scoring on the hour with a goal-of-the-season contender from wide on the right, running onto Riyad Mahrez's pass from the Leicester half, allowing the ball to bounce and ripping a ferocious, dipping strike over Simon Mignolet from 30 yards.
Eleven minutes later Vardy made the game safe, netting his 18th goal of the campaign from Shinji Okazaki's deflected shot, as Ranieri's men produced another stunning performance to bolster their remarkable title bid.
Leicester visit Manchester City on Saturday and Manuel Pellegrini's men kept themselves within touching distance of the leaders with victory at the Stadium of Light in the Chilean's 100th league game as manager.
Pellegrini will make way for Guardiola at the season's end and his hopes of signing off with a league title were kept on track by Sergio Aguero's 16th-minute strike -- his sixth goal in four appearances.
Kane double destroys Norwich
But Arsenal's title hopes took a blow in a goalless draw with Southampton that left Arsene Wenger's men in fourth place, five points below Leicester.
Asked if this was a case of Arsenal blowing another promising position in the league, Wenger told a TV reporter: "Look, I don't know why you say 'same old Arsenal'.
"For 20 years we have been at the top of the Premier League. At the moment we have to say that we have dropped points, but we have to keep fighting and believing."
Exacerbating Arsenal's fans' disappointment was the sight of arch rivals Tottenham Hotspur stealing above them into third place on goal difference.
Mauricio Pochettino's men won 3-0 at Norwich City courtesy of a second-minute Dele Alli goal and a Harry Kane double -- a 30th-minute penalty, won by Alli, and a calm one-on-one finish late on.
Fifth-place Manchester United remain five points off the Champions League places after putting Stoke to the sword with uncharacteristic verve.
Louis van Gaal's side had been booed off after losing 1-0 to Southampton in their previous game at Old Trafford, but they were a team transformed in a display that will give the under-fire Dutchman some much-needed breathing space.
Jesse Lingard headed in Cameron Borthwick-Jackson's cross in the 14th minute before a fine team goal saw Anthony Martial curl home from Wayne Rooney's pass after a sweeping move.
Martial returned the favour in the 53rd minute, teeing Rooney up for a tap-in that took the United captain's tally to seven goals in seven games.
"Three goals eh? In a row!" Van Gaal told Sky Sports. "I hope it gives us motivation to continue."
West Ham United remain a point behind United in sixth place after a 2-0 win at home to bottom club Aston Villa, who had Jordan Ayew sent off in the 17th minute for a blatant elbow on Aaron Cresswell.
Michail Antonio headed West Ham in front in the 58th minute, with Cheikhou Kouyate adding a late goal on the break.
Salomon Rondon scored a stoppage-time equaliser as West Bromwich Albion rescued a 1-1 draw at home to Swansea City, who had gone ahead in the 64th minute when debutant Alberto Paloschi set up Gylfi Sigurdsson to score.
Meanwhile, Marc Pugh and Benik Afobe scored as Bournemouth came from behind to win 2-1 at Crystal Palace, who had gone ahead through Scott Dann in the 27th minute.
Vardy vows to stay after firing stunner for Leicester
Jamie Vardy pledged his future to Leicester after the best goal of his remarkable career inspired a 2-0 win over Liverpool that kept the shock Premier League leaders on course for the title.
Vardy produced an absolute belter to break the deadlock in the 60th minute at the King Power Stadium on Tuesday when the England striker lashed home from 30 yards out.
The 29-year-old struck again 11 minutes later to seal a win that puts Leicester three points clear of second placed Manchester City and a step closer to completing their incredible bid to win the English crown.
With 18 goals to his credit this term, Vardy will inevitably be in high demand from the league's big guns at the end of the season.
But Vardy, who was playing non-league football just a few years ago, is in talks over a new deal worth a reported £80,000 ($115,000) per week that would keep him at the club until at least 2019.
"It's nothing people don't know, I'd like to be here for a long time," Vardy told Sky Sports.
Asked where the opener against Liverpool ranked home his most memorable goals, Vardy said it was the best yet.
"I don't (think I've scored better). I had been looking all game and he (Simon Mignolet) was quite far off his line," he added.
"As soon as Riyad (Mahrez) had played it through it's bounced quite high and I've got no support so I just took my chance and luckily it's gone over the top of him."
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